There are many good reasons for a very well locked down PC. Most of all, it increases security and keeps the PC in tip-top shape. This is a very common scenario for workplaces. The downside is that it also decreases in functionality and productivity by disabling some needed features, like the ability to install programs. There are many solutions for allowing free reign over a computer, yet still maintaining a level of control over the administration of it. I've already spoken about the benefits of a virtual machine in that you can easily trash the whole system and then revert back to a previous saved state when you're done, thereby having full functionality but no worry of installing nasty bugs. There are applications that can do basically the same thing, freeze the state of the PC so that it can be changed and then reverted back upon as needed. Sort of like a gamesave in a video game. No matter how bad off you get, you can always just load up the gamesave and be right back where you were. DeepFreeze seems to be the most popular solution in this space, but why pay money for something when Windows SteadyState can do the same for free?
The market for SteadyState is mainly any place that has PC's set up for public use. Libraries, schools, and possibly some work places are all good candidates. Since you can enable settings and features based on the user account, it might also be a good idea to use this for a child's login account. Nothing, however, should take the place of good parenting. In simplest of terms, what SteadyState does is creates a cache file on the hard drive. When enabled, any changes whatsoever that are made are actually saved in the cache file. When the PC is rebooted, all of those changes are removed. Go ahead and install all of those nefarious programs. Four IM applications, three browser toolbars, two back-door trojans, and a partridge in a pear tree. After your PC is completely taken over by these apps, just reboot and you're free from ITD's (Internet Transmitted Diseases).
There are many other functions to SteadySate, mostly geared towards limiting what a user can do on a publicly accessed PC. You can block websites, block control panel, redirect my documents, or control access to programs. In fact, there are so many options that it can be a little confusing to configure at first. I would suggest following along the tutorial on Microsoft's site if you're having trouble with the initial configuration. The only downside I've found is that currently it only works on 32-bit Windows installations. So, if you have a need, install SteadyState and go crazy.
See below for some of the configuration screens (click for larger view):
Main configuration page.
User General settings tab.
User Windows Restrictions tab.
User Feature Restrictions tab.
User Block Programs tab.
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